Buying a house has always been a big deal in American society. It means you are in the prime of your life. But if your credit is bad and youtake out a risky and expensive mortgage, that means you are in the subprime of life.
And that?s not good.
Subprime loans have no official definition. They are typically a couple of points higher than prime loans, often adjustable, and given to people with poor credit scores. When I think about subs, I tend to think in nautical terms about naval craft that go down. The problem here is subprime loans start high and can go even higher.
We?ve all heard more about them lately than we probably ever wanted to hear.
A few weeks ago, worries about subprime loans helped send the stock markets into a tizzy, and that?s when everyone starts to worry. Many of the subprime loans could result in foreclosure; estimates say 1 million or more homes in 2007. Now the big concern is whether problems in the subprime market will take a toll on the already challenged housing market.
In a word, probably ? the question is more of how much, not if. The expression “everything affects everything” definitely applies. If you are a subprime borrower, then you are faced with a loan that might be going up, but because you are a high risk, lenders won?t let you refinance.
But the bigger question is, do we face some sort of housing apocalypse? That answer is easy. Not likely. Since before the Sept. 11 attacks, some in the media have warned that the “housing bubble” was going to burst. It hasn?t. Housing has its ups and downs. This is one of the downs.
Investors call it a correction. The-sky-is-falling crowd forgets that part of a market ? any market ? includes good times for sellers and good times for buyers. Clearly, the real estate market has shifted some. Sellers ruled the roost for several years and made enormous profits in most cases.
Now the market is adjusting a bit, and prospective buyers, including myself, will get a little benefit. But will the bottom drop out? Not according to the experts. In the meantime, politicians on Capitol Hill are looking to lay blame for subprime problems on evil lenders instead of asking why borrowers buried themselves under mountains of debt at high rates.
At the same time, spring house-buying season is in full swing. And the Federal Reserve just hinted that interest rates might be lowered later this year, making it easier to get low-rate mortgages.
The news media have been warning about a housing catastrophe so often you?d think that the big bad wolf was going around blowing down houses. Only he?s not. The wolf is not at the door. And those who fear that America might have mortgaged its future with homeownership will likely discover that we?ve merely put a down payment on it.
Dan Gainor is The Boone Pickens Free Market Fellow at the Media Research Center?s Business & Media Institute, a career journalist and media commentator. He can be reached at [email protected].
